• Anant Patel, President, International Markets at ConnexPay


• 08.03.2023 09:30 am
#payments

In terms of innovation, consumer-to-business (C2B) and consumer-to-consumer (C2C) payments technology currently leads the way compared to its business-to-business (B2B) alternative. Making payments via PayPal, for example, can be done in real-time, whereas payments made between businesses can take several days or even weeks. While prolonged payments mostly occur when measures are taken to ensure that all parties are secure, many merchants waiting for payment payments may find this deeply aggravating. Customers also have to wait for payments from businesses, such as refunds, since their accounting department can only send payments periodically, such as once a month.

Approximately three in five (58%) businesses across the UK are owed money from late payments from other companies. Moreover, 93% of companies experience late payments regularly, and despite average expected terms of 27 days, most payments take 34 days on average, if not longer. This becomes concerning for the average merchant who writes off about 1.5% of its receivables, and these losses can be enough to make or break businesses operating on the brink of bankruptcy.

Beyond supply chain problems, labour issues, the ongoing fallout of the COVID-19 pandemic, and spiralling inflation, delayed payments and thin margins have contributed to the sluggish growth in many developed economies. If businesses had that extra 1.5% to reinvest or keep afloat — rather than waiting months — then they could put themselves, and the wider economy, on the road to recovery.

Implementing C2B technology in B2B payments

While the payments industry splits into two entirely different camps, a great deal of innovation is needed to cross over from C2B payments into the B2B space. For example, with C2B payment technology, accounting or payments professionals dealing with late B2B payments could order products on e-commerce sites with terms that suit them. Moreover, C2B payment methods, including Buy Now Pay Later (BNPL) and virtual cards, have recently been made available to customers, and real-time payments have been a standard in C2B and C2C payments for over a decade.

Meanwhile, much more growth is still needed for B2B payments. In 2021, the B2B payments market was worth $49 trillion and is even predicted to exceed $54 trillion this year. While this ~10% growth may seem promising, it still reflects a “slow recovery in business activity following the impact of the COVID-19 pandemic.” 

That’s why we must consider how important these technologies are for driving change and how they could operate in a B2B environment:

Overcoming cash flow obstacles

Despite how crucial cash flow is for businesses, the systems that bring cash into and out of businesses aren’t built to optimise it, especially within the card environment. Acquirers can usually hold funds for multiple days before releasing them – sometimes longer if weekends and public holidays are a factor. Of course, acquirers have their own reasons for not releasing funds immediately, but it can still cause cash flow problems if companies must wait for several working days or weeks on end to pay a supplier (these may also have to wait days or weeks to pay their suppliers, and so forth).

Therefore, new services are essential that allow us to access incoming funds immediately, without the need to wait for settlements and instantly make payouts. More specifically, a solution is needed that will give companies immediate access to incoming customer funds that can be used to make outgoing supplier payments, all in real-time inside a single platform.

The emergence of virtual cards

Virtual card transactions are expected to rise globally from $1.9 trillion in 2021 to an astronomical $6.8 trillion by 2026. This will be fuelled by an urgent need for companies to optimise their back-office processes; currently, too much time and money is spent on the complex processes described above, which would require modernising.

Virtual cards are the solution for many challenges associated with B2B payments. If a company needs to pay its supplier for their goods, then they could either go through the standard payments process (which can take months), or they could create a virtual credit card in real-time, which has the amount that they need to pay. This would allow them to pay their invoice immediately. As opposed to requiring a line of credit to bridge the gap between the incoming funds and outgoing payments, technology does exist that can give companies access to incoming funds instantly, which can immediately go to outgoing supplier payments without having to wait for funds to settle — reducing cashflow constraints.

These payments are far more secure than the alternatives; even if the virtual card used once is compromised, it will only contain the funds needed for its intended purpose, and they can be reclaimed through chargeback procedures. Virtual cards are also a lot more transparent with centralised control that can inform payments decisions and prevent losses.

Transitioning from C2B to B2B with ease 

While virtual cards are made available by many suppliers, it was only until recently that a provider could connect two traditionally separate payment functions and de-risk the payment process while unlocking new benefits through a single integration, with one contract for a global market. Combining these functions makes payments simpler for B2B companies, allowing them to immediately access the incoming funds that are being paid to them. Instant access to incoming funds allows companies to immediately make supplier payments and fulfil transactions in real-time.